Income tax on House property

What Income will be considered “Income from House property” ?

Income from house property consists of

1) Only the income from buildings or part of a building, held by the assessee as the owner and

2) the income from land appurtenant to the buildings is covered under this section.

Income from other property such as open land is out of the purview of this section. Income from such land will be taxed under the head, ‘income from other sources.’

What is included in the term ‘buildings’ for the purpose of this section?

The term ‘buildings’ includes any building (whether occupied or intended for self-occupation), office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section.

What is meant by the term “land appurtenant”?

Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.

What is Fair Annual Value ?

In case of let-out property, income will be ‘fair annual value’ i.e. sum reasonably expected to be received from letting or ‘actual rent received’ whichever is higher. Deduction is allowable for unrealized rent.

Annual Value or Property’ is the sum for which the property could reasonably be expected to let from year to year.

Municipal Valuation of ratable value can be taken as one of the tests to determine bona fide value of the property. If the house property is given on rent, actual rent received will be the ‘annual value of the house property’.

What can be deducted from annual value of property?

From the ‘Annual Value of House Property’, in case of let out property, following will be allowed as deduction –

(a) Municipal tax – The deduction will be permitted on actual payment basis

(b) Standard deduction of 30% of (gross annual value less municipal tax) [section 24(a) of Income Tax Act]

(c) Interest on capital borrowed to acquire or construct the house property subject to limit explained below [section 24(b) of Income Tax Act]

I am residing in my own house . What will be its annual value for Income tax purposes?

Annual Value of a self-occupied property is taken as ‘Nil’, if it is not let out.

What is allowed as deduction in case of self-occupied property?

In case of self occupied,  aforesaid expenses are allowed as deduction.

a) Interest on borrowed loan : If the self-occupied property is acquired or constructed or repaired from borrowed funds, interest payable on such funds upto Rs 1,50,000 per annum is allowed as deduction.

b) Interest for repairs: Interest on borrowed capital for repairs is allowable as deduction upto Rs 30,000.

Naturally, this will be a ‘loss’ as the annual value of self occupied property is ‘Nil’. This ‘loss’ can be set off against any other income of the assessee. In other words, if funds are borrowed to acquire or construct or repair self-occupied property, interest upto Rs 1,50,000/30,000 paid per annum is allowable as deduction from any other income.

What if I am using the house property for business?

House property or any portion thereof occupied by the owner for purpose of his business or profession is not exculded from computation from Income from House property.

Any expense of current repairs, municipal taxes, depreciation on property etc. is allowable as business expenditure.

I took a home loan for a self-occupied property and another house with a second loan. My second home is currently under construction and possession of the house is expected by February 2015. How can I claim tax benefit for the second house, especially the interest paid during the year?

A borrower can get tax deduction benefit on home loan for an under-construction property only from the financial year in which the construction is completed irrespective of whether it is pre-EMI or EMI on part payment. The interest paid during the construction period will be allowed for five equal installments beginning from the year in which the construction is completed and possession taken.

Any payment of principal during the year in which the property remains under construction is lost forever.

Secondly, when a person owns more than one property and both are either occupied by self or his relatives, the person has to treat one of the properties as self-occupied. Once a particular property is opted as self-occupied the other property will be deemed to have been let out. A notional income equivalent to the rent expected to be realised on such property will be treated as rental income in respect of the other property.

The annual value of the property treated as self-occupied is taken at nil and a person is entitled to claim interest payment for loan taken to acquire that property up to a limit of 2,00,000. The taxable income of the second property will be arrived at by deducting actual interest payable in respect of such property without any limit from the notional rent taken above, as well as 30% standard deduction on the notional rent offered for tax. In respect to both the properties you can also claim income tax benefit towards repayment of housing loan within overall limit of 150,000 under Section 80 C. You will be able to claim the interest on the second house beginning from the year in which construction of the house is completed.

Please note that owning two properties can have wealth tax implications if neither property is rented out. So consult your personal tax adviser.

5 Responses to Income tax on House property

  1. Malvinder Pal Singh says:

    to fill up ITR 1 being saleried person retired on 30th june 2011 and having income from one house & interests.the income shown from house property is less than shown in Form 16 wether fresh form 12c is to be enclosed with form V or only giving correct figure in form is enough.

  2. mvaditya says:

    I am salaried and having a house property in which am staying there and i am having a home loan in LIC , i need to file my ITR which form i need to use
    ITR1 or ITR 2 , then what is the difference between ITR 1 and ITR2

    Please kindly let me know urgently.
    Thanking you


  3. Amar says:

    I am a proprietorship firm living in municipality town Manasa population is 26000. I have purchased a agricultural land in 2008 for Rs. 262000/- . condition of that land is as follow :-
    1. location of that land is 6 Km. from Municipality.
    2. Land come under a Gram Panchayat that’s population just 3000.
    3. Still a agricultural land in record, because crops growing and cultivation going on.
    4. Nearest land is also a agriculture land.
    5. Not any Highway up to 6 km.
    6. Singal road is 2 km away from land.
    7. not any industry, warehousing up to 4km.
    after purchasing now the value of that land is 1671000 according to govt rate. now I am going to sell that land in same as Govt value(1671000).
    please suggest me does that land is capital asset? does I have to pay Capital gain tax?

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